Presented by: Melissa Sharp Murdock, Esq., Senior Manager, External Affairs FLSA Overtime Proposed...

Presented by:

Melissa Sharp Murdock, Esq.,

Senior Manager, External Affairs

FLSA Overtime Proposed Regulations: What You Need to Know Now to Be Prepared

WorldatWork

WorldatWork is a nonprofit human resources association and the compensation authority for professionals and organizations focused on compensation, benefits and total rewards. It's our mission to empower professionals to become masters in their fields. We do so by providing thought leadership in total rewards disciplines from the world's most respected experts; ensuring access to timely, relevant content; and fostering an active community of total rewards practitioners and leaders.

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Public Policy at Worldatwork

WorldatWork is the non-partisan authority on topics related to total rewards. Through legislative and regulatory analysis, strategic lobbying and advocacy, and targeted outreach and communications, the Public Policy Team represents WorldatWork members before lawmakers, policy institutions and federal agencies.

WorldatWork provides official comments, information, data and resources on total rewards to public policy makers in order to help educate, inform, influence and ultimately improve public policy impacting total rewards.

Agenda

Background

Proposed Overtime Rule

● Salary Test

● Duties Test

What Happens Next?

● Comment Period and Timing

WorldatWork’s Concerns

What Can TR Professionals Do to Prepare?

Q&A

Background

March 2014: President Obama directed the Department of Labor (DOL) to update the Fair Labor Standards Act (FLSA) overtime protections

Goals:

● Raise middle-class wages

● Increase the number of nonexempt workers

● Provide bargaining power to low-wage workers who do not have certain protections

● Simplify the identification of overtime-eligible employees

Background

DOL Proposed Rulemaking Process

Listening sessions

● Met with industry leaders and labor advocates

● WorldatWork met with DOL in April 2015

WorldatWork’s concerns:

● Raising the salary level test too high will have unintended consequences. Companies may lower base wages to offset the regulations.

● May make more employees eligible for overtime pay but this doesn’t mean that these employees will earn overtime pay.


A Hard Day's Work Deserves a Fair Day's Pay

On June 29, in a Huffington post blog, President Obama announced that his administration would publish proposed rules updating overtime regulations

● “This week, I'll head to Wisconsin to discuss my plan to extend overtime protections to nearly 5 million workers in 2016, covering all salaried workers making up to about $50,400 next year. That's good for workers who want fair pay, and it's good for business owners who are already paying their employees what they deserve -- since those who are doing right by their employees are undercut by competitors who aren't.”

http://www.huffingtonpost.com/barack-obama/a-hard-days-work-deserves-a-fair-days-pay_b_7691922.html

http://www.huffingtonpost.com/barack-obama/a-hard-days-work-deserves-a-fair-days-pay_b_7691922.html


Salary Test

Current Law: $455/week or $23,660 per year

Proposed Rule:

● Using 2013 data, $921 per week or $47,892 per year

● 2016 estimates, $970 per week or $50,440 per year

● Proposed rule sets the standard salary level test at the 40th percentile of weekly earnings for full-time salaried workers


Salary Test

● Proposed Rule establishes a mechanism for automatically updating the salary and compensation levels to ensure that they will continue to provide and effective test for exemption

40th percentile of weekly earnings for full-time salaried workers; or

Consumer Price Index for All Urban Consumers (CPI-U).


Salary Test (cont.)

Bonuses

● DOL is soliciting comments on whether or not companies should be allowed to include nondiscretionary bonuses, such as production or performance bonuses to satisfy a portion of the standard salary test requirement.


Salary Test (cont.)

Threshold for highly compensated employees (HCE):

● Current HCE salary test is $100,000 annually

● DOL is proposing to set the HCE at the annualized value of the 90th percentile of weekly earnings of full-time salaried workers ($122,148 annually)


Duties Test

DOL has not set forth specific proposals to modify the current standard duties test.

● DOL is seeking comments on the duties test. Specifically they want to know if the duties tests are currently working to screen out employees who are not bona fide white collar exempt employees?

● Are there additional occupations that should be excluded from the FLSA salary and duties tests?

White collar exemption still exists for certain executive, administrative & professional employees.


FLSA White Collar Exemptions

● Exclude certain executive, administrative and professional employees from federal minimum wage and overtime requirements

● Certain categories of employees are excluded from these requirements such as computer professionals, outside sales employees, doctors, teachers and lawyers

● Proposed rule does not seek to change these categories but does solicit suggestions for additional occupation examples


What determines if an employee qualifies for one of the white collar exemptions?

Employee generally must:

1. Be salaried, paid a predetermined and fixed salary that is not subject to variations based on the quality or quantity of work performed;

2. Be paid at least a specific salary threshold which is $455 per week ($23,660 annually) under current rules; and

3. Primarily perform executive, administrative or professional duties.

What Happens Next?

What Happens Next?

Comment Period

NPRM was officially published in the Federal Register on Monday, July 6.

The public had 60 days to submit formal comments on the proposed rule. Comments were due Friday, Sept. 4.

DOL received 290,044 official comments on this proposed rule.

What Happens Next?

Timing

The DOL will review the comments submitted through the formal comment process.

The administration will attempt to finalize the rule and have it take effect in 2016.

Republicans in Congress may attempt to prevent the rule from going into effect.

● Obama still has veto power.

● Congress will not be able to overturn the rule unless a Republican is elected in 2016.


WorldatWork fielded a Snapshot Survey on Proposed FLSA Changes

● 48% of orgs said that reclassifying an employee from exempt to non-exempt will likely decrease workplace flexibility options

● 65% of respondents said the proposed salary level increase is “too high”

● Nearly 80% of respondents stated that reclassification to nonexempt status would have a negative effect on its overall workforce, as exemption classification is a perceived measured of status desired by employees.


Negative● How will employers manage

higher labor costs?

Reduce base pay to offset overtime eligibility

Eliminate jobs to offset additional overtime expense

● Employers may reduce or eliminate supervisory positions and associated advancement opportunities

● Potential for less workplace flexibility

Positive● Reduce chance of employers

exploiting workers under ‘guise’ of exemption status

● Improve wages for former exempt employees now eligible for overtime

● Improve wages for exempt employees whose employers raise pay to meet new salary level

Potential Consequences

What Should Total Rewards Professionals Do to Prepare?

Recommendations

Review employees currently classified as exempt who will fail the new salary test

Review job documentation and tasks of impacted jobs

Ensure that your senior leadership is notified that potentially significant changes have been proposed

Review bright line employees who fall below $122,148


Perform Analysis Gather a list of employees who are currently classified

as exempt and earn a base pay level below $970/week or $50,440/year.

● Include any expected incentive or bonus payments in a separate column.

● If anecdotal data exists on the number of hours these employees may be working on a weekly basis in excess of 40/week, include in another column.

Highlight these jobs/employees on organization charts to get a visual idea of which jobs could be affected and where they exist within your organization.


Perform Analysis (cont.))

Discuss options with leadership and cost model alternatives to address:

● Raise pay to meet the new salary level and maintain exemption.

● Re-classify affected employees to nonexempt, maintain pay level and pay overtime.

Use estimate of hours worked over 40 to calculate additional cost.

● Re-classify to nonexempt, adjust pay down to accommodate additional overtime now due.


Perform Analysis (cont.)

Discuss options with leadership and cost model alternatives to address:

● Re-classify to nonexempt, maintain pay level but prohibit overtime.

Use estimate of hours worked over 40 to calculate additional work (hires FT or PT) that need to be hired to absorb work.

● Job elimination to absorb additional costs.


Other Implications to Consider

Who will you assign exempt duties of work of (current) nonexempt employees?

● Move duties to next level up (manager)?

● Maintain duties with the nonexempt employee?

If pay levels are increased to maintain exemption status, what pay compression effect will that have with the next level up?

What career development or succession planning implications will these changes create?



Questions Answers

Resources

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WorldatWork.org/flsaovertime

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Presented by: Melissa Sharp Murdock, Esq., Senior Manager, External Affairs FLSA Overtime Proposed...

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